“The growth implication of the liquidity squeeze will be undoubtedly negative. Interest rates on bank loans, corporate bonds and shadow banking credit have begun to rise across the board as we speak, further discouraging credit demand. We are concerned whether this approach will really tilt credit distribution more towards the real economy in the short term. Much of the credit misallocation in China stems from the fact that lending is often not based on financial strength but on the implicit guarantee from the state.”